Can AI-Driven Robots Save Japan?

A face of a humanoid robot, side view on black background

Japan has long been a pioneer in methodologies and technologies to save society from a demographic crisis. Japan’s next endeavour is developing AI-powered robots for industrial, agricultural, healthcare, and logistics applications.

They plan to take Nvidia’s newest GPUs to train an AI model that combines vision, language, and physical action, allowing autonomous operation without constant connection to a data center. This won’t happen overnight, but given Japan’s aversion to immigration, this is an early test case of just how far AI-driven robotics can carry an aging population.

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Transcript

Hey, all, Peter Zeihan here, coming to you from Colorado. And today we’re going to talk about Japan. The Japanese government just announced a program to develop its own model for industrial and agricultural and health care robots. In essence, they’re buying a new breed of GPU called a Reuben from Nvidia, which is the American company that is like $1 trillion company or 18 trillion. I don’t know, it’s big. In order to generate their own model. So they’re buying these chips, about 28,000 of them. They’re going to put them in a customized data center that they’re building right now, that’s on the small side, only 140MW. Nothing like the giant hyperscalers we have here in the United States. Anyway, the goal is to iterate a new model that connects vision and language with action so that you can have a robot in an industrial setting or healthcare setting, or an agricultural setting, or a logistics setting that can operate autonomously. So they develop the model, they condense it down, they pack it onto a robot with different hardware and simpler hardware, and then it operates without any sort of oversight from the data center. So starts its life a little bit like a large language model, but with something that is designed to generate a package that you can take and then put into something else, whereas a large language model just goes goes goes goes goes goes goes. Uses the same sort of hardware that the hyperscalers are using. And that’s part of the problem, because the hyperscalers like we want a million of these chips. And so Japan is in line behind all the hyperscalers which have the biggest orders and the deepest pockets. And so Nvidia designs their hardware for the hyperscalers and everybody else, like the Japanese, has to just see what’s on offer and adapt their own systems accordingly. 

Now, what is this probably going to look like? First of all, don’t get too excited about time. The Japanese aren’t going to these chips soon. The first chips only started to be produced in June. TSMC only kind of hit their stride in July, and its first real deliveries aren’t going to happen to this fall. And the Americans are in line first, so the Japanese probably won’t get their 27,500, I think, is the number, probably until the second quarter of next year. By then, most of the data centers should be built, and they can begin meaningful operations before the end of next year, but they probably won’t finish the model until right around New Year. So we’re already talking not just 2027, but 2028 before they might be able to start putting this thing into robot brains. And at that point, well, then we can reevaluate. Japan is the world’s oldest society. It’s no longer to the fastest aging, but it’s expecting a workforce shortage of more than 11 million workers as soon as 2030. Now they have a robot strategy in the country, and they’re pretty good at automation already. So they’re starting from a level in this project that is well ahead of everybody else in the world. But that’s because the need is so huge. If Japan is going to continue to be an industrialized, advanced country, they have to find a way to substitute for labor. Now, in the United States and in a lot of other countries, you could always tap the global talent pool and bring in high tech workers. 

Japan, however, is one of the world’s most racist societies. So they like robots, but they don’t necessarily like Filipinos or Indians or even Americans. So doing this AI approach is the only one. 

Once this is set up, if it works, the robots will probably still have a digital tether back to the data center, but not for operations, because they’re going to have to make decisions right there in front of them. And if they have to wait for the lag, like, you know, when you program something into Claude or ChatGPT, there’s that lag before you get the answer won’t work. All has to operate on site, but it will still be generating training data to go back to the data center to update the model. And then of course, you have software updates like you had with any other hardware. 

It’s a very promising project, merging what the Japanese have been doing for the last 40 years with the frontier tech that is being developed only just today. And if it works, we may, may, may, at least in one situation, have a partial, partial solution to what is turning into a global labor shortage, as the population of 100 plus countries is honestly just aging out to the point that we won’t have enough workers to do what we need to get done. 

But Japan, they’ve been working on this for a while. They’re using new toys. It looks pretty promising.

What Is Zelensky’s Political Future?

Volodymyr Zelensky’s historical legacy is still being written. Sure, he’s remained highly popular as a wartime leader and would likely be reelected if elections were held tomorrow. But a lot of his legacy depends upon the outcome of the Ukraine War.

Zelensky has overseen a major transformation in modern warfare, and he’ll undoubtedly receive the credit for it. However, his legacy won’t be determined by how many fancy drones were made, but rather by victory or defeat.

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Transcript

Hey everybody. Peter Zeihan here. Coming to you from Yosemite. Just finishing up the Buena Vista Crest. And I just wanted to show you this. It’s one of my favorite little hiddy-holes in the park. Check out this copse of trees behind me. There’s about a dozen big ones that just just just just keep going. Anyway, we’re gonna walk around a couple times and through it for this video. 

Taking a question from the Patreon page and specifically is what do I think the political future of Zelensky, the president of Ukraine is going to be? He’s genuinely popular, for being a wartime leader. And if fresh elections were held, I have no doubt that he would win reelection. But that’s not the question. The question is, how is history going to view this guy? And history is being played out right now. 

So the smart play four years ago was that the Russians were going to win this war. And they actually sent a Chechen hit squad to assassinate the guy in Kyiv, in the opening days of the war. 

Okay, this is a little claustrophobic, even for me, but isn’t that neat? 

Anyway, obviously the Chechens failed, and since then, the Chechen forces have suffered significant damage, and most of them have relocated back to Chechnya, where their leader, the leader’s name is here: Ramzan Kadyrov. He’s a psychopath, but I can’t remember. Anyway, And because of that, Zelensky got a lot more notoriety than he would have for, you know, a normal wartime leader. For years on, we’re now seeing a significantly different type of war that involves many, many, many, many, many, many, many new technologies that are being developed under his watch, which he will get credit for historically. Basically, we’re going through the second revolution in military affairs at the moment, which is digitizing warfare. Some people call it AI, but really it’s just using the hardware we already have in slightly more aggressive and novel ways. His name is going to be on all of that. So really it comes down to one of three things. Number one, if the Russians win, then Zelensky’s a dead man because they will make the handing over of him the contingency for any sort of normal relations with the European countries. Number two, this war enters a permanent stalemate until both Ukraine and Russia fail demographically, which is something that’s going to happen the next 30 or 40 years regardless. And at that point, he will be known as the guy who launched the new technological revolution that’s redefining what war means. The third possibility, I’m not saying it’s any more or less likely than the other two, is that the war is won. Ukraine manages to reclaim that most of the territory that is lost, and does so convincingly enough that the European Union and may even NATO admit Ukraine. And if that happens, not only will Zelensky be revered as the founder of the modern nation of Ukraine, regardless of what happens after that, but he will go down in history as one of the great Europeans, right alongside people like Helmut Kohl, who helped stitched together the continent into an entity that is at peace with itself and unified and free. Obviously, a lot of wiggle room among those three. But like I said, history is still playing out on this specific question, and we are not going to get an answer this year or next year or the year after that.

The Democrats Are Screwed, Too

Symbol of Democratic party cut out of paper

We discussed the problems with the Republicans; now let’s move on to the Democrats. They’ve got a different set of problems, but make no mistake, they are just as screwed. The Democrats have opted for a “big tent” coalition, meaning they try to appeal to as many voters as possible. The problem is, you cast such a wide net, and you’re bound to end up with conflicting interests.

The candidates can’t develop a clear policy platform, they have no charisma, and the strongest slogan they can come up with is “we hate Trump”. Oh, and the Democrats are losing more and more of their core base, including younger voters, Hispanics, and organized labor.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from the Sierra National Forest in California, just outside of Yosemite. I’m still in the Fernandez Lake, Fernandez Pass region. And as promised, we’re now going to take the whip to the Democrats. Now that we’ve already dealt with Trump. 

Okay, so there are two strategies that political parties can use in the United States. You see, we have a first past the post system, which is a fancy way of saying you vote for one person who will represent a set list of voters. And in doing that, you want to throw a relatively wide net, so you get one more marginal voter than the other guy. The Democrats follow a different strategy than the Republicans. 

The Republican strategy is to not necessarily get the most voters possible, but to get the most reliable coalition possible. So, you know, your business voters don’t care about what happens with national defence. Your military voters don’t care about what happens with abortion. Your abortion voters don’t care what happens with fiscal issues. Everybody has the issue that they care about. They show up and they tend to win because it’s very, very reliable, even though they don’t have more voters than the Democrats. Now, this strategy is now failing under Trump, because he has gone out of his way to eviscerate four of the main factions. And it’s not clear that there’s enough left to vote for him to win anything ever again. 

But the Democrats, not to be shown up when it comes to dysfunction, have their own problems. See, their strategy is the full big tent strategy. You throw as wide of a net for potential voters as possible so you can get every possible vote. The problem with that is you’re going to include factions that are opposed to other factions in the coalition. 

So, for example, green voters and union voters very rarely get along when it comes to economic policy. The White Tower crowd on the coast really doesn’t care about youth voters and vice versa. So getting all these people to show up to vote means you can’t talk about policy. And if you do, you’re going to fracture the coalition and people won’t show up. So any candidate that tries to run on being a bit of a technocrat and running on the issue, say, a Hillary Clinton or a Michael Dukakis, they’re probably going to lose. But a candidate who can ignore the policy issues and run on charisma and paper over the difference. Then you get everybody showing up in numbers, and that’s a Barack Obama or a Bill Clinton. Well, the Democrats this round have two real problems. Number one, they don’t have anyone with charisma at all. And it’s a by-election. That’s not entirely their fault. They don’t have a president to rally behind or presidential candidate to rally behind. But I mean, ever since Joe Biden became president, and especially since he left, the Democrats have been leaderless, rudderless and policyless. And it’s just really hard to generate an electoral program that is more sophisticated than we hate Trump. And, you know, that’s a lot, especially in this today’s environment. But that might not be enough because it wasn’t enough the last couple times they tried that. That’s piece one. 

Piece two is that the coalition the big tent has failed while Trump has imploded the Republican coalition, he has succeeded in drawing a lot of voters away from the Democratic coalition. So if you look at how people actually voted the last time around, under 30 split almost right down the middle, so did Hispanics, so did organized labor. And these have been three vote banks for the Democrats going back 50, 60 years. So it’s just not clear that the Democrats can play to their strengths without also suffering from their weaknesses. About the only real hope that I see for a meaningful shift is if so many Republicans, old school Republicans who don’t like MAGA, stay home or start acting like swing voters, which honestly is what they are now. Then you can see in the places where there was redistricting done, that all of a sudden, these groups that were leaning Republican all of a sudden have a lot of people who were leaning Republicans start to vote for the other side, and then you can actually get a blowout. But even in that specific scenario, which I think has an even chance of happening, you’re still not going to get two thirds of the Senate to be blue. And without that, we’re in a situation where Congress is hung, the president cannot be impeached, and we just have another two years of what we’ve had this last year. Whether that’s the best case scenario, the worst case scenario, it depends upon your politics. And I hope you enjoy how it’s going to go.

Does the Trump Administration Know What’s Going On?

Donald Trump speaking at a podium and looking intense | Photo by Wikimedia Commons: https://upload.wikimedia.org/wikipedia/commons/9/90/Donald_Trump_speaking_at_CPAC_2011_by_Mark_Taylor.jpg

On the whole, most presidential administrations have limited awareness of things like demographics, trade, geopolitics, and industrial policy. Naturally, government officials view things through a narrow lens corresponding to their background, such as business or academia. So, that’s the baseline here.

The Trump administration is different. They’ve removed thousands of senior federal officials, eliminated the institutional pipeline of experienced policy experts, and either failed to fill these seats or replaced them with lackluster candidates. Even when the occasional piece of useful information boils up, it falls on deaf ears. But this damage doesn’t just stop when Trump leaves office; the entire government structure has been weakened, and it will take years to rebuild.

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Transcript

Hello, everybody. Coming to you from Yosemite National Park. I am on the north shore of where am I? Red Devil Lake, one of my favorite spots. Lots of good camping around here. No, not too many bugs either this year. Yay! Okay. All right. Taking a question from the Patreon page specifically, I talk a lot about a lot of things that are going on in the world. Do I think there’s any chance that there are folks in the administration that are actually aware of what is going on and the issues that I address, whether it’s demographics, geopolitics, trade, the path we’re on, all that good stuff, I would say the chances are pretty low. Let’s start with how this is a normal administration and then move on to how it’s an abnormal administration. 

So first, when someone becomes president, you know, they don’t have a staff of 300,000 before. They inherit that from the government. They come in with people that they have known their adult lives, that have helped them with other issues, which is one of the reasons why I’ve always liked governors over senators or congresspeople to be president, because they’ve had to make something run and they can’t make it run by themselves. 

So when you get a George W Bush or Bill Clinton, they’re coming with a degree of institutional knowledge about how to work with people and how to work with the government, and they have people that come with them. They then tap the business community typically, or academia or the party that they’re part of, in order to bring in additional people to fill out high level slots. And so you’re always going to get this array of interests, but in service of the person in the big chair. So if you bring in, just to say a name, the CEO of Chevron, you know, they’re going to know a lot about oil policy, but they’re probably not going to know about demographics. So everything that they see, they’re going to see through that lens. So they might make, say, a good energy secretary or state secretary, but you probably wouldn’t put them in health and human resources. Everyone has their own tunnel vision. And when you’re all in service of the government, especially the person leading the government, that tunnel vision applies through your personal lenses. So a lot of the issues that I discuss, it’s not so much that Trump’s administration is unaware, although it is. It’s that so was Obama’s administration. So to a certain degree was Biden’s. So to a certain degree was George W Bush’s. Everyone’s focused on what they’re focused on. And that doesn’t change just because you like or dislike the guy in the big chair. So that’s kind of piece one. 

Piece to how the Trump administration is different. The Trump administration did not form itself the normal way because Trump was literally a real estate mogul, and only a moderately successful one at that, and a reality TV star and a very successful one at that. So you can imagine the sort of people who were in his orbit, who he then brought into government. In his first term, he did not expect to win. And so he had to rely very, very heavily on the Republican Party rather than his own connections, because he didn’t have any. And he found the process deeply aggravating, because he was bringing in all of these people who had studied policy their entire lives, and they knew so much about what was going on. And Trump always felt like the dumb person in the room. And so he usually fired them. And he went through three times as many cabinet secretaries in his first term as any three, two term presidents had until that point. In order to make sure that never happened again, in his four years out of power, he took over the institution of the Republican Party and, among other things, destroyed the public policy arm. So there is no longer a roadmap for people who are on the conservative side of the equation to learn about the world and then serve a political purpose that was ended. So the political party that is the Republicans now is only an election vehicle. So when Trump came in the second time, there was no Republican bench to tap. And in his time out of power, he didn’t run anything. So he didn’t make any new connections with people who knew how to do things. Most people in that sort of scenario would, like figure out what they got wrong. And no, no no no no no no. It was just a lot of umbrage. Anyway, so he comes in and the only people who he brings with him are two people who had been with him for or while Susan Wiles as chief of staff and Steve Miller as assistant chief of staff. And that was about it. A few people like, say, Chris Wright at Energy or John Burgum at Interior were elicited to come in because they were topics that Trump really didn’t really care about. But everyone else was an ideologue and probably an incompetent one at that. So we got people like Pete Hegseth at defense, who was to, let’s be blunt, a failed reservist, but culture war. 

Okay. So where does that leave us now? Under normal circumstances, you would still have the institutional machinery of government reporting to the political leadership, whoever it is. But Trump was so furious in his first term of having people who knew things show him up, that he went through the top 6000 positions in the federal government, basically fired them all, and has replaced very, very few of them with his own people, because there just aren’t a lot of people who can be slavishly loyal to someone like Trump and actually know something. And so out of those 6000 people, I think only 1200 spots have been filled. You may notice that with judges, we’re basically at a standstill. Trump is not appointing judges because he can’t find people who actually have law degrees who will do what he says on the bench. The fact that he’s constantly maligning, for example, the Supreme Court justices that he himself appointed in his first term tells any would be judge exactly where they fall in the equation. 

And so all of these positions are just being left empty. And so we’re paying for the entire federal government, but it lacks a leadership that would interface with the president by design. So if things that I talk about with demographics and industrial policy and trade policy and deglobalization, and the alliances and all that, even if it were being generated at the lower levels, there’s no layer between them and the white House to take the information, assimilate the information, distill the information, and then present the information. I mean, hell, we had Tulsi Gabbard as DNI for the first year and she’s either a Russian plant or really, really wanted to be. So even in those circumstances where somebody can punch through the fog and actually say the truth around Trump, if it doesn’t match his view, it doesn’t really matter. So, for example, early in the Iran war, Chris Wright, the energy secretary said, well, of course, if the Strait of Hormuz closes, and 20% of the world’s oil and liquefied natural gas goes offline, of course prices are going to go up. And Trump’s response was publicly, basically. RAWWRRRR. 

So no, I don’t think that this administration really has any real idea on what’s going on with military affairs, the economy or anything else, and that’s just how we’re going to be for the remainder of this term. And keep in mind that whoever the next president is, is going to inherit this lobotomized government structure. And assuming for the moment that it’s someone who wants to actually run the government as opposed to lobotomize the government, it’s going to take them a couple of years just to find the people that’s necessary to make it function again. So this is not just a Trump problem, it’s a Trump plus a year or two problem. Best case scenario.

Back to the Glory Days of the Spice Trade

Various spices in metal bowls

Global trade was once fragmented into many regional economies. Goods like spices traveled overland through countless intermediaries before reaching the gateway cities of Venice, Genoa, Pisa, and Amalfi. So, what can we learn from the glory days of the spice trade?

The era of deep-water navigation that Portugal pioneered is coming to an end. The global trading system is changing, and no single country will be able to secure the sea lanes. This makes a more regionalized and militarized trade system much more viable.

The complex and vast supply chains that have become the norm will soon begin to break down. Those more regional production networks will be the new standard, and the countries that realize this sooner will come out ahead.

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Hey everybody. Peter Zeihan here. Coming to you from the promenade, Barstow, Adriatic Sea. So I thought I’d talked about the geopolitics of trade and how it’s evolved in this area. We used to be the terminus of the spice trade. So in the world before roughly 115 hundred, everything was basically transported by land or coastal ship. And as a result, the world was separated into dozens of little micro economies compared to the globalized system we have now.

And in the cases of things like spices or silks or porcelains, they all originated either in East Asia or Southeast Asia, and they pass through dozens, if not hundreds of middlemen on their way through to Western Europe. Most of those routes funneled through Central Asia and eventually ended in the Ottoman Empire, in the city that is today Istanbul.

And then the Turks of Istanbul shipped them by water coastal trade to the cities of the Italian coast, most notably Venice, but also places like Genoa and Amalfi, which is just to the south of here, Pisa as well. And then those of these became the gateway for those products into Western Europe, and they made mad money on it as a result, getting too windy, going to relocate.

Okay. That lasted for a few centuries. And the Italian city states involved just got madly wealthy. And since they were on the opposite side of the Alps from all of the powers of the Northern European plain, they basically could do whatever they wanted. And they did. And they partnered with Islamic Turkey in order to make themselves wealthy at the expense of Christian Europe.

Different cultural conversation for another time. Anyway, this lasted until the Portuguese, which at the time were one of the poorer countries in Europe, all the way out on the western end of the Iberian Peninsula, figured out how to sail out of sight of land, deepwater navigation and guys like digamma figured out how to go around Africa and hit India direct and eventually take over the spice trade, directly cutting out all those middlemen.

And so, over the course of a couple of centuries, Istanbul and the Italian city states went from being the wealthiest parts of the world to all of a sudden being completely cut off from what until then had been one of their primary sources of funds.

Why is this relevant today? Well, the technologies of globalization are failing, and the system that has allowed the whole world to go wherever it wants and access any particle are breaking down. And in the world we’re about to be in, we’re going to have to go back to kind of sequestered trade and the Adriatic model. The spice trade model is probably the best one. We have to understand what’s coming. You see, deepwater navigation isn’t going away, but everybody who has ships has access to the wider world. The question is whether they can protect their sea lanes.

And I would argue that there is not a single country on the planet that can do so on a global basis. We have a number of countries with the US being the most powerful, that can intervene in those trade routes on a global basis, but none can actually protect them, which means that most trade is going to become much more regionalized or even localized, and we’re going to have to militarize a lot of it.

That changes everything from the culture of what it means to be a shipping company, to the nature of what it means to be a military and a Navy. We’re probably going to be going into a world where the single biggest impact is going to be a collapse in what we considered manufactured goods trade, because right now, unlike the world of the Silk Road, where it was all one way, we have thousands, tens of thousands, hundreds of thousands of products that require multiple supply chain steps and sometimes in the thousands and the intermediate parts that go into the final product shoot back and forth and back and forth among countries.

Many, many, many, many, many times that entire model is going to collapse. And things that can’t be produced relatively locally or within a network like, say, the European Union, simply aren’t going to be produced at all. So if you’re looking at what the economy of five, ten, 15 years is going to look like, not bad place to start is going back to the 12th, 13th and 14th century when the spice trade was all that.

It’s a great baseline to start the conversation. All right. That’s it for me today.

Project Vault Doesn’t Solve the Mineral Problem

Photo of rare earth minerals: praseodymium, cerium, lanthanum, neodymium, samarium, and gadolinium. Photo by Wikimedia: https://en.wikipedia.org/wiki/Rare-earth_element#/media/File:Rareearthoxides.jpg

Project Vault, the Trump administration’s initiative to stockpile critical minerals, is just a small step in the right direction. Sure, buying mineral-rich waste helps the U.S. build reserves, but it’s a classic case of giving the man a fish vs. teaching him how to fish.

If the U.S. really wanted to reduce its reliance on China and prepare for a world where access to critical minerals is scarcer, building out its own refining capacity should be the first step. And after that, the U.S. should begin strengthening relations with other countries that could help with supply issues in the meantime.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Today we’re taking a question from the Patreon crowd. Specifically, what do I think of Project Vault? Now, Project Vault is something that was set up by the Trump administration back in February with a couple billion dollars to purchase things like rare materials. Rare earths is the term that always gets tossed around, and it’s in there, but it’s just one of many getting the mining tailings that are rich in these materials and bringing back to the United States and building a stockpile $2 billion for that, which is a lot for basically what is mine waste. 

It’s an interesting step, and I’m not saying it’s not an unnecessary one. I’m actually kind of glad this happened, but it really doesn’t deal with the core problem. Key things to remember is that most of the materials that we need for the digital age, things like rare earths, for example, or gallium, are byproducts of other materials processing. So for example, you have a silver mine, you extract the silver. 

The waste is rich in things like rare earths, or you are doing aluminum smelting. And one of the byproducts is material that is rich in gallium. So getting those materials into the United States and concentration. Great idea. It’s only step one and not even the smart step. The smart step would just be to build the processing. The problem with the world faces right now is 70% on average of critical materials processing is done in China. 

And so basically what the US government is doing right now is buying waste product from Chinese processing and bringing it here, and it’s a step in the right direction. But, you know, honestly, just build the processing, because if we get into a position where the Chinese cut off supply or there’s other some sort of supply disruption, you then have to build the processing anyway, or ship those tailings back to China to be processed. 

I mean, even building a reserve of the finished product, the refined metals, does it really take us to far down the road because it’s still being done in China? Until you build that processing, the rest of it doesn’t really matter in terms of sourcing the raw materials. That’s really not that hard. And as we’ve seen with Project Fault, it is already filling up. 

But if you want to build a Chinese free system, there are three countries that you really need to focus on because they’ve got robust mining sectors. Number one Canada. So maybe stop calling it the 51st state. Number two Australia. And so maybe stop saying they’re not racist enough to be our friends. And number three is Brazil. And relations with Brazilians are probably at the worst since at least the 1970s. 

Right now, bottom line is, without a little bit of diplomacy to secure some of these things, the rest of it’s kind of a rounding error and just continues with the Chinese dependance that supposedly we want to break so badly. So yes, baby, step in the right direction. Maybe we take some bigger ones soon.

Why a Russian-Chinese Pipeline Won’t Happen

An oil pipeline closeup

If China and Russia are so buddy-buddy now, why don’t they build pipelines across Siberia to bypass the Persian Gulf?

There are more issues than I can cover in this video, but here are a couple. Their recent cooperation is less of a friendship and more of a “the-enemy-of-my-enemy-is-my-friend” situation. Geography is the bigger problem, though, with thousands of miles separating Russian energy sources and Chinese population centers.

Even if a pipeline plan was put in place, neither side would want to pay for it, and Russia wouldn’t have the technical expertise to develop it. So, unless maritime shipping goes completely offline, this pipeline isn’t happening.

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Hey everybody, Peter Zeihan here, coming to you from Middle Chain Lake in southeastern Yosemite. This is one of my favorite places in the national park system. We’re just going to pan around from time to time as I’m doing this video. Have it all to myself. Anyway. 

Today we’re taking a question from the Patreon crowd. Specifically, if China and Russia love each other so much, why don’t they just build a pipeline or cluster of pipelines connecting them to one another and not have to worry about the Persian Gulf at all? 

Great question. Let’s start by saying that the Chinese and the Russians do not love each other very much. They are arguably two of the most racist cultures in the world, and the culture that they’re most racist against is one another. The Chinese see the Russians as backwards barbarians, and the Russians see the Chinese as peasants. So any sort of collaboration they have is in reaction to other things, not because they actually like one another. That’s part one. 

Part two. It’s simple geography. It’s a distance issue. The population of Russia, for the most part, is hard up on the European boundary, and the bulk of the Chinese population is within spitting distance of the Pacific coast, which leaves something like 7 to 8000 miles of great wide open empty in between. Now, if you want to have a pipe, you’re going to have pumping stations, and that’s already a very long way to go. So if you go in from European Russia to Asiatic China, you’re already talking about pumping costs that are well over $80 a gallon. Most likely, that’s on top of the tens of billions of dollars that it would take to actually build the pipeline. That’s number two. 

Number three, the oil and natural gas that the Russians have is, for the most part, in the wrong place. It’s almost all in northwestern Siberia, which is actually further from China than European Russia. So it’s easier to do, say, a rail line going to China than it is a pipeline. And so the eastern and Western networks for the Russian energy distribution system just don’t connect. There’s like one spot and it’s pretty small. So whenever the Russians go, oh, we’re just going to send our oil and gas somewhere else and not to Europe, it’s mostly bullshit because they just don’t have the capacity to do so in large volumes. 

That brings us to the final point, is that there are a few fields going out into Asiatic Siberia, places like Kovykta which is just to the northeast of Kazakhstan, and places like Sakhalin Island, which is just to the north of Japan. These are places where the conversation isn’t silly. The distance is only, you know, a thousand miles or so, as opposed to going all the way across the continent.   

The problem here is that the Russians don’t have the technical skill that’s necessary to tap these fields. And so in the case of Kovykta, that was a BP project. And when BP was basically shown the door a few years ago, it stalled. And in the case of Sakhalin, not only did the Japanese kind of call dibs on that output, but it takes super majors like Exxon or BP or Japanese firms, most of which are now gone because of the war, in order to keep the output going. So it just doesn’t justify anything. 

Whenever Putin and Xi get together, the conversation always is, hey, let’s do a pipeline. And they both always say, yeah, hey, that sounds great. And then they both point at the other one, say, and you pay for it. The Chinese see no reason to pay for infrastructure that is going to cost so much to operate. And the Russians see no point in paying for infrastructure that will benefit the Chinese. So we just get these stalled statements and no real motion. And this is how it’s been going for the better part of the last 30 years now.  

Now, if you change the circumstances, if you remove maritime transport altogether, then all of a sudden we’re having a different conversation. But that doesn’t make the project any cheaper. So you’re still talking about tens of billions of dollars to get the infrastructure in the ground, and then a transit costs that is about the same as prices are right now. So you’re talking about a very nasty change in circumstances if that’s how you want to go. All right. That’s it for me for today. Take care.

Ukraine Is Shooting Fish in a Barrel

Statue in Kiev, Ukraine against a misty forest

Ukraine has created a system to determine which ships belong to the shadow fleet and which belong to major companies. By sourcing ship identities, transponder data, routes, and ports from these companies, Ukraine can strike unidentified vessels with high confidence.

The result? Roughly 200 shadow fleet vessels have been attacked around the Black Sea and the Sea of Azov. Even if the Russians can replace the downed ships, storage capacity will be overwhelmed by damaged vessels and disrupted ports.

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Transcript

Peter Zeihan here, coming to you from Colorado. Today we’re taking a question from the Patreon page. Specifically, it has to do with how Ukraine is targeting Russian ships on the Black Sea, but ignoring others since a lot of countries are just not using the transponders anymore. Great question. The backdrop is we have had the Ukrainians attack about 200 shadow fleet vessels on the Black Sea and the Sea of Azov. During the past roughly two months, and we’re nearing the point where enough damage has been inflicted on the shadow fleet that it’s probably going to stop functioning later this year, which is going to end Russia’s presence as a significant oil exporter. A lot going on, but there are six countries Romania, Bulgaria, Russia, Ukraine, Georgia, Turkey, yeah, six countries on the Black Sea. And how do the Ukrainians know who to attack and whatnot? We will also note that the Russians, from time to time hit a ship that is not Ukrainian. So why are the Ukrainians able to target and the Russians aren’t considering that the Russians are the ones who are the superior military power by most measures? 

What happened is about a month ago, the United States government, the Trump administration, transmitted some information to the Ukrainians that they weren’t very happy about. The Ukrainians had been attacking a place called Novorossiysk, which is a significant naval port and commerce port on the Black Sea, on the Russian section. And at Novorossiysk is the terminus for a pipeline called CPC, the Caspian Pipeline Consortium, which transports crude from Kazakhstan, specifically the Tengiz field that is operated by Chevron and Exxon through Russia to that port and then to the wider world.  

And the Trump administration was angry that the Ukrainians were attacking what they see as American infrastructure. Russians obviously don’t see it that way anyway. And basically said, stop doing it. Well, what the Ukrainians have done is they’ve contacted every shipping company in the world and said, hey, if you’re operating in the Black Sea, A, tell us the name of the ship be give us their transponder so we can follow them. C, give us their course and D,the ports you expect them to be at and when and if we can confirm that information as part of our operations, we will not attack those ships. And so far, every shipping company in the world is complying except the Shadow Fleet. Shadow fleet runs dark. Shadow fleet doesn’t report, and that’s the whole point. 

So what the Ukrainians have basically done, they have mapped out the entire commercial world of shipping in the Black Sea and attacking the ships that don’t report. And so far, attacks on third parties have, I think, single digits while the shadow fleet is taking a complete pounding. Is it enough? Will it last. Well, I mean, really ultimately that depends upon how the Russians pay out their providing insurance for their own shadow fleets. And from what we’ve seen so far, it’s, they’re not paying out. But the Russians take ships that otherwise would be scrapped. So they’re not reducing the global supply of vessels. They’re reducing the global supply of vessels that were on the scrap heap. 

There’s going to be some churn as the Ukrainians burn through what the Russians have. But there is an end in sight here. Because if the Russians cannot load cargo, whether it’s grain or crude, eventually the ports just run out of storage facilities, and that cuts down production inland. Just as effective as stopping the shadow Fleet would. So one way or another, we’re getting there. We’re getting there this year. And it’s kind of a minor miracle that it’s all happening without interfering with other shipping in the Black Sea. The Persian Gulf, a completely different situation. Nothing nearly so friendly is happening over there.

The End of U.S. Strategic Petroleum Reserve

Photo of a pumping station at sunset

The U.S. Strategic Petroleum Reserve (SPR) was created in the 70s as a safeguard against major disruptions in oil imports. Well, those 700 million barrels were never used for its intended purpose.

As the U.S. became one of the world’s largest producers and exporters, the SPR was retasked. It’s been used a few dozen times by various presidents to influence oil prices and stabilize markets. But it was never made for that. The geologic makeup of the SPR caverns means that each time a drawdown occurs, the structures are weakened.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Today I wanted to talk about the American Strategic Petroleum Reserve. There’s been a lot of reports in the news that it’s nearing the end of its life, and it’s starting to break down, and there is some concern there. But let me explain why it was created the way it was, and how that’s inappropriate for the way we’ve actually used it. 

So it started back in the 1970s in the aftermath of the first Arab oil embargo. Congress legislated the creation of the reserve to hold 700 million barrels of crude, which, you know, we use about 20 million barrels a day. So that’s a couple of months of import cover, even in the worst case scenario. The thing is, over the course of the 80s and the 90s, when we saw our demand going up and our ability to produce go down, it became even more important. 

So we eventually filled it up pretty close to the max. But then we got into the 2000, we had the shale oil revolution, and by the time we got into the 2010s, the United States was a significant net exporter, and today we’re the world’s largest exporter of refined product. So how does the SPR fit into that? Well, not great. And part of it is geologic of all things. 

See, unlike most countries’ oil reserves which are held on the surface in tanks, which is corrosive to the tanks and the equipment and the crude starts to separate unless you stir it. So there’s a high maintenance cost. We don’t do it that way in the United States, down on the Gulf Coast, we have a unique geological feature, nearly unique, called salt domes, where you just have these massive salt caverns down below and salt and oil don’t mix. So it’s a really great barrier for keeping oil contained. So what we do is we drill down into the salt dome and we inject water, and that water dissolves some of the salt and makes the cavern bigger. Then we put another pipe in there, and we pump in the crude. And oil is lighter than water. So it rises to the top of the salt dome. And all you have to do in order to regulate the level of the oil is to pump in water, which pushes some crude out or pump in more crude, which pushes the water out because your pipes are there at different levels, tapping different things. 

Anyway, it’s a really clever thing and the maintenance cost is next to zero, but it has been a half century. And equipment does wear down, and especially since we’re not using it the way it was designed. You see, we designed it for big drawdowns in cases of a global and especially a national emergency, when we knew we were going to need hundreds of millions of barrels because we assumed that the Middle East was going to go offline and we were the world’s largest oil importer. 

Well, we never really used the system in that way. And every time you do a drawdown, big or small, you basically are putting more water into the cavern, which is dissolving more salt, which is overall weakening the overall system. So these caverns were only designed to be used five times total for big drawdowns. We’ve never really had a giant drawdown of that scale. What we’ve had are three dozen little drawdowns, which keeps putting water in and out, in and out and dissolving more and more salt. And we’ve now reached the point where the salt gnomes are starting to show signs of damage. And if we did a rapid drawdown again today, we’d probably have several of them break. So we’re at the end of the lifespan of the SPR and without significant re-engineering, which I’m not even sure is possible since so many of the pieces are geologic rather than mechanical. 

We’re probably going to be seeing the end of the reserve in the not too distant future unless we find new salt domes, establish a new system, or do what everybody else does and does those expensive above ground tanks. So we really are losing that tool. Now, this is not a disaster. Again, the United States is the world’s largest exporter of refined product and now the second largest exporter of raw crude. It’s not like this is something that we’ve needed, but it gives you an idea of where the break is, because this was designed for a national emergency for a country that was a major importer. Instead, in those three dozen drawdowns. Presidents not just Trump, also Biden, also Obama, Also W, use them to regulate oil markets and to try to influence prices. And that’s why there’s been 37 discrete drawdowns rather than the big five that the system was designed for. So we’ve gotten to the same place repeated usage is functionally ending the salt domes useful life span. But now we have a situation where we have to get all that crude out of there and put it on the market or store it some other way, because we’re simply not going to be able to maintain it in its current form. 

So either we have a new multibillion dollar project authorized by Congress to establish an entirely new reserve, or the United States has to do something else in order to regulate markets. That’s not something the United States government, historically speaking, has been a very good at. I think if you look back on the history of these 37 disbursements, you can argue that they didn’t do a good job of it either. But this tool is just about done.

Global Shipping Comes Under Attack

Cargo ship with containers

While oil is still moving through the Strait of Hormuz, flows remain a fraction of pre-war levels.

Some tankers have made it through by using tactics similar to the shadow fleet, obscuring their movements to avoid detection. Once the tankers clear the Strait, they conduct sea-to-sea transfers under American protection. But this strategy is extremely expensive, and the U.S. cannot sustain it indefinitely.

More importantly, it demonstrates how difficult it is for even the world’s most powerful navy to protect critical maritime chokepoints from relatively small-scale disruptions.

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Transcript

Hey everybody, Peter Zeihan here. Coming to you from the Denver International Airport. Before I get on a plane, I just wanted to give people an idea of what was going on at the Strait of Hormuz, because there’s been a lot of confusion lately. Statements from the administration, from the Iranian government. It’s kind of a mess. Short version is that some crude is getting out. The Trump administration says it’s 9 million barrels a day. The Iranians say it’s something closer to zero. The truth is undoubtedly someplace in between. I don’t have a number for you. Independent Western consultants that track traffic say it’s probably in the 3 to 5 million barrels a day range, which is, you know, better than nothing. But this is down from 20 million barrels a day, 22 million barrels a day at the start of the war. And even if you include all the bypass pipes running at full capacity, we’re still somewhere between 4 and 10 million barrels per day short, based on whoever’s numbers you’re using. Still more than enough for an energy crisis. Anyway. A few things. 

Number one, what’s happening is that the United States is providing overwatch for tankers that are going through, if they originate in countries on the Arab side of the Persian Gulf. So that’s Kuwait, Saudi Arabia, Qatar, United Arab Emirates. Second, what’s going on is kind of an echo of what the Russians and the Iranians did with the shadow fleet. So the shadow fleet is a bunch of tankers, thousands at this point, that run with the transponders off. Their ownership is obscured through shell companies, and you never know where they’re going to be. And oftentimes they will do sea-to-sea transfers to mix their crude with somebody else’s crude, to obscure where it came from in order to evade sanctions. Well, what we’re seeing in the Persian Gulf is that local state companies, whether it’s Kuwait or Saudi or the others, are using their own tankers to load up their own crude and then sailing with the transponders off under American Watch through the southern approaches to the Strait of Hormuz, as far from Iran as they can get. And then when they get on to the Indian Ocean, the Gulf of Aden, they will then do a sea to sea transfer to a buyer, which is India, China, whoever else. So basically, the United States is encouraging, kind of an echo of the shadow fleet happening in the Persian Gulf. And so far that has succeeded in getting some crude out. Again, the specific numbers are in question by everyone. Third. This is not something the United States can sustain indefinitely. The cost to the United States is in probably the dozens of millions of dollars a day, because we’re basically having a carrier anchored task force basically just parked in an area. And as long as it is there, it can’t do anything else. And since it’s not involved in combat, at least at the moment, this is a really high cost, low utility approach for using American military power. The Trump administration says that, you know, only do this into Iran completely capitulates. But if Iran was going to completely capitulate, it probably would have done so in the four decades before now, at some point. So if you want Persian Gulf crude to get out, you basically need a force of this size all the time. Which brings us to the next point. 

There are eight major transit chokepoints in the world, like the Strait of Hormuz, like the Bab-al-Mandab, like Malacca, like Panama. No country has the ability to defend all of them at the same time. The U.S. can probably manage 2 or 3, but that would consume all of its deployable assets, meaning that the world’s largest and history’s largest expeditionary power would be locked down to a couple of footprints, which would be strategically, incredibly stupid. So I wouldn’t count on that happening. In addition, the United States can’t do this very well. So, for example, Hormuz is a problem, but the United States is not making any effort to keep the Bab-al-Mandab open, even though the Yemenis are now launching attacks on shipping there. And we even have Somali pirates back in the action. What we discovered with the Somali pirates over the last 20 years is if the United States anchors an international force to patrol the area and everybody joins, including China, then the Somali pirates basically go away. But the amount of territory here is extreme. You’re talking about a territory roughly the size of Texas, and the US Navy just doesn’t have that kind of capability. And so even though it’s just at the next checkpoint over in Hormuz, we’re now starting to see piracy again. This is going to be our new normal. 

No country, including the United States, no coalition of countries can keep the seas safe any longer. So it’s just a question of when and how and where it breaks down first. I do want to hold one other little bit of information out there, however, before I sign off. And that’s that keep in mind, while protecting sea lanes, patrolling them, convoying ships is very, very hard and very, very expensive and very, very naval ship heavy. Interrupting those flows is very easy. And so, yes, the United States lacks the ability to patrol the world’s oceans and to keep the checkpoint safe, but it perfectly, perfectly, easily can disrupt all of them at the same time, should it so choose. It’s basically an echo of what we’re seeing with drone warfare. Defense is really hard, but if you just want to stick it to someone, you can do that in an afternoon.